Great article. I in all honesty think what PBOC did was in the national interest of China. Credit is running wild here. I am currently doing a Chinese language course and doing some rock climbing in Yangshuo and I see so many really badly run business being propped up by credit be it black or white credit, either way they will have bank repossession or broken legs

Great article. I in all honesty think what PBOC did was in the national interest of China. Credit is running wild here. I am currently doing a Chinese language course and doing some rock climbing in Yangshuo and I see so many really badly run business being propped up by credit be it black or white credit, either way they will have bank repossession or broken legs

China does pretty well with its 5-year plans. The latest one, which puts #1 goal: “Balancing the needs of growth with the needs of sustainability.” So for example, China has made its provinces accountable for capping energy usage - which alone should cap growth at 7% till 2015. Sustainable means "environment-friendly". So it is likely that the PBOC is also considering its #1 5-yr plan goal. Analysts should consider that too.

China being a highly controlled Economy opted to be a good student by learning from the excesses of Europe, Japan and North America. Their industries build structures from tested & analaysed models from the developed world. This advantage is now waning, coupled with a ballooning middle class who will push for greater freedoms, i believe the Central bank was simulating pressure valves for the kind of challenge they expect in the future.

In my Money and Banking course we are discussing a great deal about matters related to ones like this. Banks need to be able to efficiently and easily borrow money from other banks in order for interest rates to remain low and cash to flow smoothly. What stands out to me is the growth and supply of credit in China. The article says that the supply of credit is growing faster than the economy is growing, and although this may be very premature, that is nearly what happened in the United States during the late 1920s and early 1930s during the Great Depression. However, China has the power to prevent our past from becoming their happening. Interest rates in China are generally very low, making it safe for China’s central bank (The PBOC) to print Yuan. Still, the PBOC refusing, at least at first, to bail the smaller banks out of crisis shows something. It shows that the central bank of china is trying to put a slowing halt to its nations rapid growth of credit. When credit is rapidly growing, the majority of the time this leads to default. Default of one banking institution leads to default of another institution and so on. Eventually, when the PBOC did intervene, ordering China’s larger banks to help bail out their smaller banks, the interest dropped back down to their low, normal level. Still, panic is to be found amongst China’s citizens, which can be understood, for throughout business cycles there are busts and booms, along with miniature booms and miniature busts, just like the one present in this article. Running out of money is the main issue, but when growth slows the spending slows, and money will be tighter.

Thank you for allowing me to post this on your website for my class, it is much appreciated.

Beijing is still tackling the liquidity crunch issue. Growth will slow down in the next few months before picking up again. For sure, China remains fully aware that inflation and stock markets would not get out of hand.

"A central bank may be reluctant to print money if it fears inflation. But inflation in China is quite low." So The Economist sees no harm a little bit inflation, let s tell Troika the inevitable truth, before they kill Europe....

I am thinking that maybe the double digit growth machine has run out of steam permanently. No country has been able to maintain the upward trajectory for long, and it appears that each new round ends up with the outcome of less income per capita than the previous round of countries climbing the economic ladder. One of the causes is ecological collapse, especially the destruction of forests. The harder it is to get wood, the harder it is to build cities. The heat is on China to reduce wood imports, and the flooding China is already experiencing, along with the droughts, remind everyone how little of its own forest China has left to protect its watersheds and climate. The smog in Singapore also reminds us.

A second cause is rising inequality, The Koch brothers and their minions tell us economies should only deliver for the 1%, but clearly that is not working too well.

I have always found that when there are fewer truly productive places to invest as modern economies grind down you get asset bubbles. These are not aberrations, they are the only way the 1% can get fast enough returns to slake their greed.

China has as many greedy people as the US, and when combined with the need to create employment to stave off civic unrest they make mistakes that bring the economy into stall faster. They grab more instead of more widely distributing income and building resilience to climate change.

We are looking at the financialization of everything, but it is no way to run an economy. Look for a long term trends towards steady state economies with all countries trending toward the global mean in income.

The PBOC's plan is to tighten, then loosen, then tighten, etc. with an overall trend of tightening with the objective of reigning in excess credit, while hopefully avoiding a panic. At least they are facing the problem and have the courage to tighten unlike the western central banks. All we get are Ben Bernanke's open mouth operations where he says he may taper down QE in the future. Big deal. Well, of course if any big bank gets in trouble, Bernanke will make sure that bank will get whatever liquidity it needs. So nothing has changed in the west. Banks can continue to be irresponsible and they are working hard on the next financial crash. PBOC at least is trying to make their banks manage their balance sheet risks in a more responsible way. I hope they stick to it.

This could also have been a dry run for testing out credit crunch..so even if a Lehman like situation happens again ( high probability in France) then the Chinese are ready. And this asset liability mismatch is dangerous and if not managed properly can result in utter chaos.

If you think a country's asset (ie. real estate) prices can keep growing at huge rates without some rational pullback, then you sound like those U.S. housing market bozos in 2007.

China's time will come. No one escapes recessions--a natural part of economic growth--no matter how deluded they are about having a "controlled" economy. And the longer you go without one, the bigger the fall.

The reason for the unaffordable housing price is that suburbs and rural areas in China are extremely undeveloped or even unlivable for average people in the world. Chinese are therefore, forced to live in cramped yet convenient high storey residential buildings in urban area. And the total available land for building these skyscrapers in urban area is increasingly scarce and expensive. Trust me , if you were chinese you would rather pay 200% more just to be able to purchase an inner city unit than save these money and live in the intolerable chinese countryside.

"In the end ..." - what end ?
The USA is going through a period, where it is on top. Britain had a period, where it was on top, and so did Spain. If you go back far enough, even Greece had a period on top.
In the end, we are all dead, and the best we can hope for is to have lived our lives in a country that was doing okay.

Property speculators think they're onto a sure thing. Urban dwellers exceeded rural dwellers for the first time in 2011. The central planners have now announced an úrbanisation policy'.

Rather than being a free market, urban residential property is now steered centrally. This new risk factor is going to catch property speculators unawares. Probably when the central government announces 'growth centres' and 'no-growth centres', or mandates a proportion of affordable housing for each development.

A centrally-planned market is not a place for free marketeers - beware.

Like i said, the seemingly skyhigh housing price can be justified by rigid residential demand as well as formidable tax imposed by the govt (china is not like U.S., the tax system is broken here in china so they live on land tax). If you still think housing price is a bubble, then you gotta admit that every bubble eventually bursts after a tiny force of pricking. But this is not the case in Chinese property market, in which numerous steps of tearing down the price have been exhausted by the govt but all seemed to have no effect and the price continues to advance gradually.
But any way, im not a speculator and im not into recommending anyone to speculate or paying too much attention to the china property, all I want to say is that "chinese property is neither a very good investment nor a bubble, its just a rigid deman."

The countryside has fallen out of favour with Beijing, seemingly because too many of the younger generation are headed to the cities for higher-paying jobs. This leaves a weight of the older generations in the countryside, like a national retirement home. Not a good sign for increased levels of agricultural productivity.